In last month’s issue, I looked at the way we think about crypto, macro, and today’s market as Wall Street starts to encroach on the space.

In this month’s issue, I think about whether our faith and certainty are justified.

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Now that crypto prices have gone up long enough for people to think they will keep going up, experts say you have a green light to pour a ton of money into crypto.

Up only! Halving cycle! Four-year cycle! MAC-D cross! Golden cross! Kris Kross!

Did everybody suddenly forget about “the macro”?

In the US, we have $1 trillion in corporate debt products called CLOs, a financial product that’s very similar to the mortgage-backed securities that caused the global financial crisis in 2008. Nobody knows if they’re rated properly.

Insurance companies who bought bonds before Fed rate hikes are sitting on massive losses—one bad storm or a big event could wipe them out.

Did you forget about commercial real estate? Prices are down, vacancies are up, and refinancing costs have exploded.

In October, many college graduates will need to pay back student loans again. The US stock market is still above historical benchmarks. Housing prices continue to fall. Car prices, too. Business financing conditions are the worst they've been in a generation.

On the other hand, funds and businesses still hold historically high levels of cash and cash equivalents. Home inventory remains tight, the median home price already dropped 10% this year (20% for new homes), and homebuyers took mortgages at higher interest rates with the expectation they’ll refinance lower “once the Fed cuts.”

Government bonds offer great yields that cash-heavy corporations can leverage for money to expand and invest in their businesses. Earnings remain strong. Household debt remains historically low relative to GDP and wages (both of which keep going up). As people repay their loans, they free up capital for other investments and purchases.

The US will have a recession. Guaranteed. Unavoidable. Inevitable.

Under the old definition, we had one in 2022. Another one is certainly coming. It's only a matter of time.

Here's the rub:

• If you're waiting for a recession, you’re waiting for something that doesn't happen very often (and may have happened last year).

• If you think the US economy can’t grow with unemployment above 4%, the facts disagree with you.

• If you think the markets can’t go up with interest rates at 5% or higher, you’re betting against history.

A faith-based organization

Does that seem odd?

The Fed says people have too many jobs and make too much money. It needs to “drain liquidity” and “weaken the labor market” to get maximum employment and stable prices.

That is, after all, its mandate: maximum employment and stable prices.

A lot of people place a lot of faith in its capacity to do this. The crypto market obsesses over the Fed’s decisions. Financial media watch it like hawks (or doves, depending on where you want interest rates to go). Huge investors plan major financial decisions around the Fed’s actions.

As such, you’d expect that faith has merit. The Fed’s track record must be pretty amazing, right? Surely, it hits its benchmarks more often than not, right?

Nobody knows.

In its Statement on Longer-Run Goals and Monetary Policy Strategy, the Fed says maximum employment is “not directly measurable and changes over time,” therefore it’s not appropriate to define a goal.

For stable prices, it sets an average of 2% inflation over time, with no standard for how to calculate that average. Does that mean 2% in a year? 2% annualized for ten years? A median of 2% over a rolling five-year period?

With no standards, benchmarks, or goals, you can’t measure the Fed’s success. But I can!

Let’s set our goals:

• Maximum employment: an unemployment rate of 4% or less. This was the layperson’s definition when I studied economics.

• Stable prices: an inflation rate of 2% or less. This is the Fed’s stated target, without averages or medians.

How often does the Fed meet those goals?

Not often.

The US economy almost never reaches full employment. Look at all the “full employment” years shaded black in this image:

The unemployment rate dropped below 4% only 161 out of 907 quarters since records started in 1948.

What about the other part of its mandate, inflation?

Chairman Powell said inflation is more important than employment. Economists claim inflation and unemployment have a negative, inverse relationship. In other words, they always move in different directions.

If that's correct, and employment numbers rarely hit the mark, you’d expect inflation to win most of the time, right? Isn't that the trade-off?

I guess not. Inflation stayed above 2% in 46 out of the last 63 years.

The Fed whiffed on employment 82% of the time and missed on inflation 73% of the time.

Just you, me, and the markets 

Does that mean the US economy is doomed?

Nope. The US economy has grown in 285 of the past 305 quarters.

93% of the time, the US economy is growing. Asset prices generally go up, too.

The US stock market finishes positive three out of every four years. Real estate does even better. The price of “stuff” keeps going up, regardless of what the Fed does.

The money supply shrinks and grows. Rates rise and fall.

Markets persist.

Long and variable lag, indeed.

Do central banks matter as much as you think they do? Do their actions mean what you think they do?

I don't know. I love to hear your comments at the bottom of this post. 👇

If you don’t like the results, change them

We may not need to think too hard about this. Central bankers admit they don't always know the consequences of their decisions. They're just trying their best.

Usually, that’s good enough.

If not, the government can simply change its benchmarks.

In 2020, the US changed its definition of recession. This year, it changed the way it calibrates CPI, the so-called “headline inflation.”

Next year, it could pick a new definition of full employment or target inflation. Maybe it should!

If you move inflation to a 3% target, the Fed hits its mark 31 out of 64 years—a near 50% success rate.

If you bump up the definition of full employment to 5%, then the US economy is at full employment 38% of the time (340 out of 907 quarters).

This is how you solve problems in the legacy system: find a new definition of success or make up your own.

If only we could take such liberties with cryptocurrency.

With cryptocurrency, we are at the mercy of the markets. We have to hold ourselves accountable for our decisions and the consequences, even if they come from somebody else’s negligence, fraud, aggression, or incompetence.

When projects fail, they have no government to step in and keep them afloat. When protocols get hacked, they have no lobbyists or lawyers to petition the government for redress.

Maybe the victims can get justice or compensation. Maybe the developers can find legal counsel or advisors.

The code is what it is.

A fine line

Like the legacy financial system, the crypto market grows despite its flaws.

Not in a straight line. Not all the time. And not for most projects.

As a general trend over the years. Step by step, dollar by dollar, token by token, pump by pump, dump by dump.

With each new year, a new feature in a wallet. And new token standard. A new vulnerability patched. A new feature unlocked.

It all happens without the intrusive hand of special interests, central banks, and regulatory authorities.

Should it be that way? The result is fraud, failure, grift, and loss.

You want to test, stress, and attack these protocols so they’re robust and durable, unlike the legacy financial system.

At the same time, you want to protect people from the consequences of those actions. Where do you strike a balance? At what point do technical progress and economic discovery outweigh the risks to users and participants?

I’ll leave that to the ethicists. We wager our money on the outcomes of financial experiments. Best to enter with eyes wide open.

Today, the market is pumping. It won't pump forever.

Today, exchanges work fine. That might not always be the case.

Today, Tether seems solvent. Tomorrow never knows.

Embrace uncertainty

For those reasons, I stick to my plan. My plan simplifies all buying decisions into three lines on a chart. It condenses selling decisions into two metrics.

With my plan, you're up 450% or down 40% at the extremes. On average, you're up 25% with cash to spare.

If you bought 1 bitcoin each day from the day I published this plan, you'd have spent about $36 million for 1,210 BTC. If you had followed my plan instead, you'd have spent about $25 million for 1,168 BTC with $600,000 cash set aside for the next opportunity.

Fewer bitcoins, yes, but you squeeze more “juice” out of the market. You end up with more total wealth. You spend 30% less for almost the same amount of crypto and a fistful of cash to boot.

Of course, this is all hypothetical, using only averages, and assumes you recycle every penny of your savings into the market at prevailing prices for the same amount of BTC each time in the exact same way under each scenario under all circumstances.

This isn't how things work in the real world, but it seems like the fairest comparison. I'm sure somebody can find one or a few specific timeframes where dollar cost averaging beats my plan. On all time frames, most traders do worse, though some do much better.

(I measure in BTC instead of dollars to make this an easy calculation with a trading chart. To do the calculation with dollars, I would need to convert each day's purchase into an amount of BTC, which takes a lot more work and gives you the same result: my plan beats dollar cost averaging and most traders.)

Your central bank is always trying to pump the assets of people who are richer than you or crush your wages, put you out of work, and strangle your business, depending on whether inflation is running too hot or too cold.

At the same time, your government is destroying the value of your money—some years by a little, some years by a lot.

You need an escape. You need an alternative.

That’s what brings us together.

Bull or bear, I don’t care

Crypto analysts will tell you this is a bull market, but it feels like a bear market.

Leading indicators tell you everything's about to fall off a cliff but your friends think everything's OK.

YouTube tells you crypto’s about to explode but nothing’s exploding.

We're in the disbelief stage of the Wall Street cheat sheet.

Does that mean we’re in a bull market?

That's up to you. You get to decide.

Bitcoin’s price pumps 200% in bear markets and dumps 50% in bull markets. Sometimes, it goes sideways for months—big upswings and downswings that feel extreme at the moment, and then you look back at a price chart and the market looks like a horizontal squiggle.

What do you notice at the end of that line that I circled in the Wall Street cheat sheet?

It drops, just like prices drop during the first sell-off in the famous anatomy of a bubble chart:

We haven’t gotten that sell-off. It'll come.

We don’t know how high Bitcoin’s price will go before it does.

If you’re throwing all your money into the market now, you’re saying you don’t want to have an opportunity to buy that crash. You don't want to get more crypto at lower prices.

You're chasing the market upward. For every new dollar you put in, you can expect to get less out.

Just take advantage of opportunities when they come. Sometimes, it’ll feel wrong. Prices will keep going down after you buy.

It’s ok! You can make up for bad timing. Complacency kills.

Bitcoin’s price spent most of 2022 in my buying zone and spent more time below $30,000 than above. Not a bad time to load up.

Earlier this year, Bitcoin’s price moved out of my buying zone. At that time, a trading opportunity came up. I shared this in my February 2, 2023 update.

For anybody who missed those opportunities, I suggested putting a “good chunk” of money into the market and setting aside cash for the normal 30-50% crash that we get so often in bull (and bear) markets.

If you didn't like that idea, I said to put in however much you feel comfortable with. Just make sure you put something in.

Then prices zoomed. Last month’s dip below $26,000 gave you another chance to put more money into the market.

That’s five opportunities in one year, with cash to spare if the market drops again.

With the market picking up steam, you might feel like you've missed out enough already. You should have put more money in when prices were lower. You need to make up for lost time.

When the market goes up, you will always feel that way.

Cryptocurrency is a marathon masquerading as a sprint. Everybody wants to sell you on the sprint. We know it's a hard race and a long path. Pace, endurance, and fortitude matter more than speed and hustle.

New money’s not coming in yet. It’s mostly just us stalwarts, OGs, and dreamers stacking, staking, and averaging in.

At the same time, we still have lots of risks that could play out unexpectedly. I’ll continue to share those in my weekly rundowns and market updates.

We glorify the hares, but the tortoises win the race.

Pumping ain’t easy

With all the hoopla around US ETFs, “levels of resistance,” “liquidity,” and all the other things you're hearing about, you’d think we’re about to get that MOON LAMBO WAGMI face-ripping rally that influencers have talked about for the past few months.

That depends on what the big dogs do with stablecoins.

This year, all the major pumps involved big movements of stablecoins.

In early January, a big buyer bought $1-2 billion BTC from miners in exchange for BUSD, Binance’s stablecoin. This wiped out sellers, setting the stage for January’s pump.

In February, the amount of BUSD fell $2 billion. That same amount happens to almost match Binance’s $1.8 billion shortfall in BUSD reserves last year. It's also roughly the size of the BTC purchase from January.

Did Binance print fake BUSD, buy BTC, pump the market, then sell BTC to cover its shortfall?

I’ll leave that to the conspiracy theorists.

A more mundane explanation? A large entity used BUSD to settle a private deal. Later, the people who received the BUSD decided to cash out. Binance facilitated these transactions.

That's very boring and makes a lot of sense, but when you're talking about stablecoins, you can’t make these assumptions. People do shady things with stablecoins.

Our pumps in March and June came from sudden infusions of TUSD. Both times, somebody minted $1 billion in TUSD out of nowhere. Shortly after that, the market pumped.

We know this happened because we have the on-chain data. The problem is, that data doesn’t tell you exactly who’s involved or what they do with the proceeds.

For example, you can find always some funny-business in the movements of miners’ Bitcoins, but miners move Bitcoin all the time—e.g., to new wallets for security or accounting, transfers to/from cold/hot storage, private deals, or payment to other miners, vendors, and people who they provided services to.

Without personal knowledge of what's going on, you can’t make too many inferences (though plenty of people try).

A lot of activity happens behind the scenes. Often, large purchases go through brokers or get tucked into a larger entity’s deal. There are other ways to move large amounts of stablecoins and crypto.

This looks like collusion, whale manipulation, or exchange trickery. Maybe it is, but you can’t tell just from the on-chain data.

Social media doesn’t always make this distinction.

You can often come away with the wrong idea or a misplaced sense of certainty.

Bottom line: until we see signs of a new awakening or speculative interest, let’s not get wrapped up in FOMO MOON LAMBO.

Onward and Upward

Mark, you're saying the move from $15,600 to $31,800 was totally manipulated and artificial?

I don't know, and neither do you. Sometimes, prices just go up. Shenanigans and private deals are common in all markets. We may not see much new money coming in, but we also don’t see a lot of sellers.

That’s not the point!

January’s leap from $16,000 to $24,000 was only a 50% move, normal behavior at the bottom of the market.

Since then, Bitcoin’s price has ranged between about $20,000 and $32,000—50% to the upside and 30% to the downside. Typical moves in all market conditions.

I’d bet we’d have gotten a similar result without the stablecoin shenanigans, simply from the natural churn of buyers and sellers. At the end of 2022, sellers had mostly disappeared. Anything could have sent the market higher.

It just so happened to come from pumpage rather than organic activity. If not for the pumpage, the organic activity would’ve brought us to today’s prices.

Take the shenanigans and throw them in the pot. Mix them with a ton of stacking and HODLing. Sprinkle some aggressive selling from miners, an occasional large sale from big entities, profit-taking from bottom-buyers, and whatever happens with the US government’s Bitcoins and the Mt. Gox settlement.

This is your recipe for 2023.

If prices come back to us, we’ll buy. If they go too high, too fast, we’ll sell. Anything in between, we’ll just take it as it comes.

Free money while you’re sitting on your hands

What do you do while you wait for the next buying opportunity?

You could save cash or sell something you don’t need.

You could also leverage safe assets for cheap cash to buy crypto.

For example, government bonds have the least downside risk and pay out in your currency.

To make for easy math, let’s assume you buy a $1,000 one-year T-bill from TreasuryDirect (or whatever the equivalent is in your country). Then, you take out a fixed-rate personal loan of $100 at 10% interest.

Breakdown:

• Invest $1,000 @ 5% = $50 yield / year

• Borrow $100 @ 10% = $10 interest / year

You give up $100 (loan) and $10 (interest).

You keep $1,000 (principal on your bond) and get $50 (yield) and $100 (crypto).

Visualized simply (an illustration, not an actual accounting system):

You can do this until your interest totals more than your yield minus taxes. As long as your bond and loan have the same duration, denomination, and tax treatment, it’s free money.

You only need to make sure you have enough money to pay off the loan when it comes due and cover any additional fees—which you already do! When the bond matures, you’ll use the proceeds to pay off the debt and any taxes you might owe.

(Taxes depend on your personal situation, the type of bond you buy, and the type of debt you use. Please make sure you factor it into your decision!)

Of course, you still have to protect yourself against counterparty risks and other contingencies. And you’re on the hook for the money you borrowed. AND the value of your new crypto may go down.

You could still end up worse off on the deal.

It’s free money, not free profit.

Tomorrow can worry about itself

It's a tough time to predict the future.

Some people insist we will have a global recession.

China’s in rough shape. The Ukraine-Russia conflict wreaks havoc on global agricultural markets. The European Union is already in a technical recession—two consecutive quarters of negative growth.

On the other hand, some people insist the worst is behind us and cryptocurrency’s about to start a massive bull run.

Both positions make sense. I guess we'll just have to see which happens first.

In late 2015 and early 2016, the world grappled with similar circumstances. China had an economic crisis. The US stock market dropped. Oil prices fell 30%. The Fed raised interest rates. A Pew research report showed 75% of Americans rated the US economy as fair or poor. The International Monetary Fund’s 2016 outlook predicted “subdued demand,” “diminished prospects,” and “tilted to the downside.” Some large countries went into recession.

Crypto did okay in 2016. Up 126% from start to finish. Up 500% from the 2015 bottom to December 31, 2016.

Fortunately, you have a good allocation to the market and fresh cash on the side. Whether we get our 30% crash now or later, you’re in a great position.

Now’s a good time to think about your larger portfolio strategy. You can see mine.

You may also want to dabble with NFTs. The bottom fell out of that sector of the market. Great time to learn. Tier 3 Illuvium land below 2 ETH, single Pavia plots for 140 ADA, Cryptofinneys for 0.05 ETH…you’re getting great value for the risks you’re taking. Many NFTs trade without correlation to the overall market.

I realize I'm supposed to talk about left-translated cycles, echo bubbles, the revival of stock-to-flow, the U2R model, data, projections, and predictions.

In due time!

For now, use this time to reflect on what you have, what you want to have, and what you want to get out of this market.

At the end of the day, when all is said and done, what goals do you have for yourself and your finances? How does cryptocurrency fit into those goals?

Whatever you decide, I hope this newsletter will continue to give you the perspective, insights, and strategies to get you what you want. I'll continue to post weekly rundowns, market updates, altcoin reports, and the occasional special issue.

We’re all in this together. Relax and enjoy the ride!